{"id":293,"date":"2013-05-10T19:27:59","date_gmt":"2013-05-10T10:27:59","guid":{"rendered":"http:\/\/trucompareindia.com\/?p=293"},"modified":"2015-03-17T18:00:21","modified_gmt":"2015-03-17T09:00:21","slug":"are-endowment-plans-any-good-for-wealth-creation","status":"publish","type":"post","link":"https:\/\/www.trucompare.in\/blog\/are-endowment-plans-any-good-for-wealth-creation\/","title":{"rendered":"Are Endowment Plans, aka Traditional Life Insurance Plans, Any Good for Wealth Creation?"},"content":{"rendered":"

Since most of the life insurance policies in India are still sold as “savings and investment”, endowment plans( also known as traditional life insurance plans) are the most popular of the products. This trend was started by LIC of India ( oldest insurer in India) whose agents goaded investors to save and invest for the long term for their retirement or for their children’s education and marriage. Indians being the great savers they are, were easily lured into such plans. In other cases, these life insurance plans have been sold as the best “tax saving instrument”. And the reason for pushing these have been the commissions earned by the agent of LIC of India for these plans. Now look at the reality of wealth creation by such life insurance plans.<\/p>\n

I will take an example of HDFC Life Endowment Plan for a 30 year old male ( results will be similar for other insurers like LIC of India).<\/p>\n

Sum Assured- 10 lakhs<\/p>\n

Duration- 20 years<\/p>\n

Premium- 47000<\/p>\n

Maturity Amount @ 6% bonus- 1357000 ( Realistic)<\/p>\n

CAGR – 3.7%<\/h2>\n

Maturity @10% bonus – 1958000 ( Best Case)<\/p>\n

CAGR – 7.1%<\/h2>\n

As Life insurance companies in India typically invest in government securities, your typical bonus would actually be closer to 6%( look at this bonus table<\/a> from LIC of India), hence your CAGR would be around 4%. Please make a note that most of these bonuses do not compound.<\/p>\n

Can you see the real truth behind these measly returns?\u00a0Would these be enough for your future needs?<\/p>\n

Now lets took at an alternative of buying a ”\u00a0term insurance + Tax saving MF ” – <\/strong>this will give you the same insurance and tax benefits as the endowment policy. The intent is to compare the “wealth creation” element.<\/p>\n

Assuming premium paid is 47000 ( same as in the endowment plan)<\/p>\n

For sake of comparison, I have taken HDFC Life Insurance policies only<\/p>\n

Premium for a 10 lakh life insurance policy for 20 years ( HDFC Life) – 2600<\/p>\n

Investment of 44400 in HDFC Tax Saver for 20 years.<\/p>\n

Rate of return- Although this fund has given 29% for last 14 years( since 1999), we will be conservative and take an expected return of about 12%.<\/p>\n

Maturity Amount (12%)- 32 lakhs<\/h2>\n

Maturity Amount (20%)- 82.89 lakhs<\/h2>\n

Can you see how buying an endowment plan actually reduces your chance of any wealth creation! Give this illustration a thought before you buy your next endowment plan. One should never buy financial products based on “gut feel’ or “hard sell”. Look at the hard data and historical evidence.<\/p>\n

So ask these questions from your LIC advisor before he comes knocking at your door for the next fabulous plan.<\/p>\n

If you have been stuck in endowment plans, this might a good time to surrender or make it a reduce paid up policy ( if you have paid for 3+ years). No point throwing good money after bad!<\/p>\n

If you are near the maturity of an endowment plan, then you better increase your coverage by buying a term insurance. If you need help with your current situation or buying life insurance policies, feel free to contact<\/a>\u00a0or check www.trucompare.in<\/a> for an online quote.<\/p>\n

\"TruCompare_head\"<\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Since most of the life insurance policies in India are still sold as “savings and investment”, endowment plans( also known as traditional life insurance plans) are the most popular of the products. This trend was started by LIC of India ( oldest insurer in India) whose agents goaded investors to save and invest for the … Continue reading Are Endowment Plans, aka Traditional Life Insurance Plans, Any Good for Wealth Creation?<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[9,2],"tags":[],"class_list":["post-293","post","type-post","status-publish","format-standard","hentry","category-endowment-plan","category-term-insurance"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack_shortlink":"https:\/\/wp.me\/p3wDt5-4J","jetpack-related-posts":[{"id":1206,"url":"https:\/\/www.trucompare.in\/blog\/are-you-still-buying-insurance-for-investment\/","url_meta":{"origin":293,"position":0},"title":"Are you still buying traditional insurance plans for investment?","author":"Trucompare","date":"May 2, 2016","format":false,"excerpt":"I am still appalled to find many people still buying life insurance policies( especially endowment\/single premium\/money back) for the purpose of investment. When you are investing your money, you want to have returns that beat inflation\u00a0for a longer period of time. When you are buying life insurance, you are doing\u2026","rel":"","context":"In "Endowment Plan"","block_context":{"text":"Endowment Plan","link":"https:\/\/www.trucompare.in\/blog\/endowment-plan\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":641,"url":"https:\/\/www.trucompare.in\/blog\/best-term-plans-in-india\/","url_meta":{"origin":293,"position":1},"title":"Best Term Insurance Plans in India- A quick comparison","author":"Trucompare","date":"March 26, 2015","format":false,"excerpt":"\u00a0 Best Term Insurance Plan Please see an updated version of the comparison here-\u00a0IRDA Claim Settlement Ratio for 2015 - Compare best online term insurance plans As online term plans have gained popularity, almost all the life insurance companies have come up with their online term plans and claims to\u2026","rel":"","context":"In "Term Insurance"","block_context":{"text":"Term Insurance","link":"https:\/\/www.trucompare.in\/blog\/term-insurance\/"},"img":{"alt_text":"TruCompare_head","src":"https:\/\/i0.wp.com\/trucompare.in\/blog\/wp-content\/uploads\/2013\/05\/TruCompare_head.png?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":503,"url":"https:\/\/www.trucompare.in\/blog\/why-term-insurance-is-needed\/","url_meta":{"origin":293,"position":2},"title":"Do I Need Term Insurance Plans?","author":"Trucompare","date":"September 16, 2013","format":false,"excerpt":"A reader query: I am a 32 year old person working in the IT industry. 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HDFC LIFE\u2026","rel":"","context":"In "Term Insurance"","block_context":{"text":"Term Insurance","link":"https:\/\/www.trucompare.in\/blog\/term-insurance\/"},"img":{"alt_text":"TruCompare_head","src":"https:\/\/i0.wp.com\/trucompare.in\/blog\/wp-content\/uploads\/2013\/05\/TruCompare_head.png?resize=350%2C200","width":350,"height":200},"classes":[]},{"id":14,"url":"https:\/\/www.trucompare.in\/blog\/should-one-buy-term-plan-from-likes-of-lic-or-private-insurers\/","url_meta":{"origin":293,"position":4},"title":"Should You Buy Term Insurance from LIC of India or Private Insurance Companies?","author":"Trucompare","date":"May 3, 2013","format":false,"excerpt":"One of questions often asked by clients while buying term insurance is- Can I trust private insurance companies or should I stick to government providers like LIC of India, SBI Life etc.? 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